Investing for Transformation in 2013

By Nick Evans

For many organizations, now is the time for annual strategic planning and for identifying where to invest in IT initiatives in 2013 and beyond. One of the key questions faced every year is deciding, given a limited budget, on the most attractive investment choices to make and on the percentage of the investment that should go toward core, adjacent and transformational projects.

A recent Harvard Business Review article points out that a typical allocation is something like 70/20/10, with 70% of the investment going into the core business, 20% into adjacencies and 10% into new, transformational initiatives. Interestingly, HBR points out that the financial returns are typically the inverse of the spend allocations -- that is to say, 70% of the returns come from the transformational initiatives and only 10% from the core.

When we apply this thinking specifically to IT investments, another question is how to maximize the return from investments in disruptive technologies such as cloud, mobility and social networks. Of course, the return will depend on how big a bet you are placing on these initiatives -- sticking with smaller-scale departmental projects or going all out with implementations aimed squarely at the core of your business.

It's worth noting that disruptive technologies aren't necessarily adopted as transformational initiatives. Yes, that would be the case if you were taking a new product or service to a new market, but if you were incorporating the disruptive technology into your mission-critical, "run the business" applications (perhaps via application modernization), that would be a core-business initiative. And as these technologies have become more mature and proven, implementing them within your core business in 2013 can be a great way to harness their value.

Here are five recommendations for maximizing your returns with disruptive trends:

1. Look for areas where the trend can enhance your mission-critical applications. Many mission-critical applications are in need of modernization, and techniques such as cloud-, social- and mobile-enablement can raise them to leading-edge functionality and enhance their value for both internal and external end users. In addition, modernization can be a lower-cost and lower-risk approach than typical "rip and replace" initiatives, where new software development or new implementations are required.

2. Look for transformational ideas that can help innovate new processes and business models. Disruptive trends and their associated technologies are simply the means to an end, but they can open new possibilities. As an example, NFC (near field communications) technology in some of today's smartphones can offer a way to rethink physical access control and payment methods for employees.

3. Look for internal efficiency gains where you can generate significant cost savings or productivity gains. You might be able to optimize IT spending by moving application development and testing to the cloud or leveraging social collaboration more extensively across the organization. For example, the city of San Francisco is using Yammer for real-time employee communications during day-to-day operations, which has helped it reduce costs by forgoing an unwieldy infrastructure.

4. Look for areas where you can apply a combination of the trends to provide greater business value. Many enterprise applications may be able to migrate to the cloud for internal IT agility and cost-effectiveness while also incorporating social or mobile enablement. For example, an airline might seek to improve its market pricing applications by giving its analysts access to big data analytics so they can better understand consumer sentiment but then expand on that initiative by at the same time helping the analysts collaborate more effectively over social- and mobile-enabled channels.

5. Aim for a balance of "quick wins" and "must haves" among your strategic options.Look for a suitable mix of investments that provide both near- and longer-term returns. This will give you a balance of tactical projects that can be implemented rapidly and more strategic initiatives for the longer term. A great way to analyze this is to look at a cost-benefit matrix (sometimes called a project prioritization matrix), where you plot each investment option on a chart based on business value (often the sum of factors such as financial value, strategic alignment and level of innovation) versus ease of implementation (often the sum of factors such as time and cost to implement and maintain, project risk and complexity, and organizational capability). Selecting the right blend of "quick wins" and "must haves" is crucial to managing your investments.

As I mentioned in my previous article, disruptive trends are predicted to grow from 20% of IT spend today to 80% by 2020, and applying these recommendations can help you both maximize your return on the technologies as part of your annual strategic planning and transform your IT infrastructure to prepare for the next IT paradigm.

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James Finnan has been covering financial markets for 10 years. He has served as Editor in Chief of CFOZone.com since 2010. Additionally he has been a contributing writer to the My Media network of sites including CIOZone.com, myITview.com, and myCIOview.com.